FSU Editorial: "Fed Rally - Buy, Hold or Sell?" by James West 07/02/2006

FED RALLY - BUY, HOLD OR SELL?
by James West
buythebottom.com
forever a student of the markets
July 2, 2006

Broad Markets

COT data was little changed from last week in the major indexes:

S&P 500: http://buythebottom.com/spx.html
Russell 2000: http://buythebottom.com/rut.html
NASDAQ 100: http://buythebottom.com/ndx.html
Dow Jones: http://buythebottom.com/indu.html

However, this most recent COT data, reports up until Tuesday, meaning Wednesday through Friday will only be published in next week�s report. It will be very critical to see how the commercials reacted to this �FED� rally.

Did they buy the rally or did they sell into strength? Well, commercials naturally like to sell into strength and buy on weakness. But, I will give the rally the benefit of the doubt for now. On the chart above, I marked 1245 � 1255; I will call this level FED RALLY Support. If the market is above this level, I am short-term bullish on stocks, and if the market breaks below this level I am going to reverse my position and become short-term bearish.

FED RALLY Support Levels (for the rest of the indexes)

S&P 500: 1245 � 1255
Russell 2000: 688 � 695
Dow Jones: 10 980 � 11 040
Nasdaq 100: 1540 � 1545

Thus far, none of this changes my longer term view-point: I am still a BEAR.

Gold - http://buythebottom.com/gold.html

It looks like the summer gold rally is underway. Gold broke above its downtrend at 590 � 600, and as long as it stays above this level, I am bullish on anything gold-related.

Oil - http://buythebottom.com/wtic.html

In the months of May and June, commercials turned bullish on oil on a relative basis. However, this market is not quite done setting up. I think we may see some strength in the near future, but optimally I would like to see the yellow line break the white down-trend line before I turn all out bullish on crude. And in order to see that happen, crude oil will probably need to continue trading in its 68 � 75 dollar range. Another possibility is a quick dip to its 200 day moving average at $65. Any break above $75, while commercial net-position is negative, will probably fail.

The big picture for commodities is still very much intact. We are in a bull market, not a bubble like some jokers claim; hence I remain a buyer of any weakness/pullbacks in this sector.

Enjoy your holiday weekend everyone,

James

Updated weekly COT charts can be found @ www.buythebottom.com

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Contact Information
James West
www.buythebottom.com
Toronto, Ontario, Canada
Email: westjam @ gmail.com (Remove the space before and after @ when sending your email)